WASHINGTON — The Trump administration proposed Thursday to rip off the Band-Aid from Fannie Mae and Freddie Mac, ending conservatorship of the mortgage giants and leaving them to raise their own capital in the private market. But the plan raises a whole host of questions and left many wondering whether it could advance.
Included as part of an Office of Management and Budget plan for reorganizing the government, the housing finance reform proposal would appear to require both legislative and administrative action, such as creating an explicit government guarantee for mortgage-backed securities for "limited, exigent circumstances."
"There are large hurdles on both sides to getting this passed from a vote count perspective,” said Rob Zimmer, head of external communications for the Community Mortgage Lenders of America.
The plan calls for reducing the footprint of the government-sponsored enterprises in the housing market. Fannie and Freddie would be converted into "fully private entities." The housing giants could access the explicit federal guarantee, but so could other market entrants.
Both GSEs would lose their federal charters. A federal regulator would oversee the "fully privatized GSEs," approve the creation of new guarantors and "develop a regulatory environment that is conducive to ... competition."
"If the GSEs lost some of the benefits that have led them to dominate the market, this would enable other private companies to begin competing in this space," the OMB plan said. "The regulator would also ensure fair access to the secondary market for all market participants, including community financial institutions and small lenders."
Federal law enforcement authorities have arrested 74 people in this country and abroad, accusing them of participating in a wire fraud scam whose victims included real estate attorneys and settlement service providers.
The government was able to seize $2.4 million of alleged ill-gotten gains as well as disrupt and recover $14 million in fraudulent wire transfers as part of Operation Wire, an operation undertaken by the Department of Justice, the Department of Homeland Security, the Department of the Treasury and the U.S. Postal Inspection Service.
But that is just a drop in the bucket in the dollars lost to what the federal government classifies as business email compromise schemes and its variant, email account compromise. Victims have reported over $3.7 billion stolen since the Internet Crime Complaint Center started keeping track of these frauds in late 2013.
Of the 74-people arrested, 42 were in the U.S., 29 were in Nigeria and one each in Canada, Mauritius and Poland.
"I want to thank the FBI, nearly a dozen U.S. Attorneys' Offices, the Secret Service, Postal Inspection Services, Homeland Security Investigations, the Treasury Department, our partners in Nigeria, Poland, Canada, Mauritius, Indonesia and Malaysia, and our state and local law enforcement partners for all of their hard work," said U.S. Attorney General Jeff Sessions in a press release. "We will continue to go on offense against fraudsters so that the American people can have safety and peace of mind."
There were 23 individuals charged in the Southern District of Florida, including eight people in an indictment unsealed June 4 for laundering $5 million from a Seattle corporation, various title companies and a law firm, the Department of Justice press release said. The indictment does not contain the victims' names.
The ability-to-repay standard is responsible for the reduction in loan application defects over the past four-plus years, according to First American Financial Corp.
For April, the First American Loan Application Defect Index was 82, unchanged from March, but up from 81 in April 2017. However, the index is down 19.6% from October 2013, when it was at 102, before the ATR rules went into effect in January 2014. The index measures the frequency of defects, fraud and misrepresentations in mortgage applications.
The Consumer Financial Protection Bureau is considering changes to the ATR and qualified mortgage rules that would loosen those standards.
"Since the ability-to-repay rules were issued, there has been a precipitous and significant decline in income-specific mortgage loan application misrepresentation, defect and fraud risk. In fact, our income-specific metric within the Loan Application Defect Index reached its peak in December 2012, one month before the rules were issued." said First American's Chief Economist Mark Fleming in a press release.
"By September 2013, nine months later, the income-specific defect risk metric declined 33%, as lenders implemented new loan manufacturing and underwriting practices in preparation for the effective start of the rule in January 2014. Since then, income-specific defect and fraud risk has continued to decline and is currently 70% below its peak prior to publication of the ability-to-repay rules."
For April, the income risk index was at 39, up from 38 in March, its all-time low. In December 2012, this component was at 131. In October 2013, when the overall index was at its all-time high, the income risk index was 88.
"The rules have reduced the incentive to fraudulently misrepresent one's income, a benefit to lenders," said Fleming. "The ability-to-repay standards are essentially the mortgage fraud risk prevention equivalent of using a steering wheel lock to dissuade potential car thieves."
The refinance component of the index was at 71 for April, up from 70 in March and 66 in April 2017. Meanwhile for purchases, April's index was 87, compared with 89 in March and 89 in April 2017.
The Consumer Financial Protection Bureau fired all 25 members of the agency's Consumer Advisory Board during a conference call Wednesday, saying it wanted to bring in more diverse views.
Anthony Welcher, a political appointee and the CFPB's policy advisory for external affairs, told consumer advisory members during a brief call that the agency would be modifying how the board works.
"We've decided we're going to start the advisory groups with new membership, to bring in these new perspectives and new dialogue," Welcher said, according to a recording of the call obtained by American Banker. "We want more diverse voices and we want to bring people in from larger-scale organizations, larger-scale opportunities in the communities to hear about processes we may be going through."
The CFPB sent an email to the consumer board members stating that it would continue to convene a consumer advisory board, which is mandated by the Dodd-Frank Act, but would reconstitute the group with "new, smaller memberships."
"Smaller memberships will ensure streamlined discussions about the Bureau’s policy priorities and needs in a productive manner," the email stated.
The CFPB said the board's members and those of two other agency boards, the Community Bank Advisory Board and the Credit Union Advisory Board, were terminated and that they were not allowed to re-apply.
Large banks could stand to get similar relief from mortgage data reporting requirements that Congress just gave community banks, but that relief may not be all it's cracked up to be.
On the one hand, acting Consumer Financial Protection Bureau Mick Mulvaney's comments that he wants to ease Home Mortgage Disclosure Act requirements imposed by his predecessor is welcome news. But on the other, more data helps lenders know how they stack up to the competition, and lenders may end up collecting the data anyway. The data also would have exposed lenders to far greater scrutiny of fair-lending violations.
"The problem without comparable data is a lender can't figure out how they compare to everybody else," said Leonard Ryan, president of QuestSoft Corp., a Laguna Hills, Calif., provider of mortgage software.
The regulatory relief bill that President Trump just signed gave 85% of all banks relief from expanded HMDA data fields mandated by the Dodd-Frank Act. Congress enacted HMDA in 1975 to root out discrimination in mortgage lending.
Dodd-Frank mandated 14 additional data fields for HMDA data collection, on top of the nine that already existed. The statute also gave the CFPB the discretion to add additional data fields, and former CFPB Director Richard Cordray used that authority to establish 25 additional data fields.
But Mulvaney turned heads earlier this month in a speech to the National Association of Realtors when he signaled he plans to use the same authority to rescind all 25 data fields. Such a move would extend regulatory relief to a wider array of lenders than in the reg relief legislation signed by Trump.